When the economy is sinking and inflation fading rapidly, is there any merit in cutting interest rates gradually? On December 4th the Bank of England again opted for boldness. It cut its benchmark rate by a percentage point, to 2%, following a stunning one-and-a-half-point reduction a month earlier. On the same day Sweden's central bank slashed its rate, from 3.75% to 2%, and said big cuts were needed because monetary policy was less effective than usual. But the European Central Bank (ecb) was stuck somewhere between caution and boldness. Less than an hour after the Bank of England's decision, the ecb reduced its main rate by three-quarters of a percentage point, to 2.5%. That was the biggest cut in its ten-year history. It may look daring, but in the circumstances seems inadequate.rnOne reason for the Bank of England's haste is that the British economy, with its housing bust and exposure to financial services, is falling fast. Yet the euro area is struggling almost as badly. A closely watched index of activity, based on surveys of purchasing managers in manufacturing and services, slumped in November to its lowest level ever. That suggests euro-area gdp is shrinking fast, and for a third successive quarter. Business and consumer confidence is at a 15-year low, according to a survey by the European Commission. Unemployment is rising-rapidly in Spain, but also now in France, where the jobs market had seemed resilient.
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